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May 22, 2007

Clients Looking for the Off-Ramp Need Help Making the Turns

Advisors help smooth the transition

Part Three of a three-part series

One of Lois Crichton's clients was heading for the off-ramp. The client and her husband had worked the numbers, and the turn signal was already blinking when they walked into Crichton's office to announce their plans. Unfortunately, it was up to Crichton, of Crichton Wealth Management in Charleston, West Virginia, to put on the brakes.

The woman was 38, and her husband was 47. They were both attorneys with two small children at home, and they had been working diligently on their long-term financial plan, socking away the maximum every year into qualified retirement accounts to meet their lifetime goals. Now, though, she wanted to spend more time at home with the kids and thought that working part time doing interior design would cover their cash flow needs while she took time off from her legal career.

What they hadn't figured on was what taking time off would do to their savings plan. That's a common mistake women and couples make when eyeing the off-ramp, Crichton says.

"People only think about how they can cover their income today, but they don't think about their long-term needs or how their inability to save will impact their retirement," Crichton says.

Crichton, whose firm is part of Wachovia Securities, used the firm's Envision modeling software to illustrate exactly what that lack of savings would mean for everything from paying for their kids' college tuition to maintaining the lifestyle they had hoped would last through their retirement. By running the numbers through Envision, it was clear that the wife would eventually have to go back to work in a high-paying job or that the couple would have to make significant changes to their long-term goals.

"When I work with people on planning, I'm not looking at what they're making and spending," Crichton says. "I drive from the savings perspective."

And that is a critical issue that often gets lost on the way out of the corporate world. Crichton's goal isn't to tell clients that they can't take the off-ramp; it is to show them their options and explain the ramifications of their choices so that they can go into the next phase of their lives fully prepared.

That's what happened when another client came in, ready to quit the workaday world. This client was 51 and had spent most of her professional life as a single mother. Now she was remarried, and she and her new husband were convinced they could live well on his salary until he retired. After that, they felt his pension of $36,000 a year, on top of their individual savings, would provide a very comfortable lifestyle.

"I had to ask her, 'What happens if he dies tomorrow?'" Crichton says.

After doing a little research, Crichton discovered that if the new husband died, her client would only receive $3,000 a year from his pension.

"You really have to understand the worst-case scenario," she says. "That's why asking these difficult questions is so important, and what makes my practice so rewarding."

In this case, after working the numbers Crichton was able to show her client that even in the worst-case scenario, she would be fine because she had already saved enough for a comfortable retirement.

Beyond the long-term implications, though, women who consider taking a break from their careers also need some short-term perspective, says Maryalice Kimel, a partner in Hansen, Kimel & Associates in Ashville, North Carolina. The fact is that many women don't have the luxury of planning their exit; they are forced to leave work because of a family emergency.

"You're not always prepared for that," Kimel says, which is why she encourages each of her clients to keep three to six months' worth of living expenses available in a cash account. That way, if they do have to quit their job suddenly, there is a cushion to support them while they adjust their long-term plans.

A short-term strategy is just as important for a planned sabbatical, Kimel says. Her business partner, Paige Hansen, learned that lesson the hard way. Hansen was working in a high-pressure job on Wall Street on September 11, 2001. After that tragedy, Hansen decided she needed to make some major changes in her life. She quit her job and took a year off to figure out what she wanted to do next.

Working with Kimel, Hansen admitted that she had been so afraid of spending any money during her time off that she hadn't made the most of it. If she had drawn up a budget and set money aside at the beginning of the year, she could have relaxed more during that time, Kimel says.

"If you go into this period knowing that this is something you are doing for yourself and you put the money aside, you'll be able to enjoy your time off," Kimel says.

Taking the off-ramp can be an exciting--and scary--time for clients. And that's exactly when they need calm and objective guidance from a trusted advisor, someone who can show them how to navigate the roads less traveled.